The UAE markets are expected to rebound in 2019 due to strong positive macroeconomic indicators, low valuations of stocks and higher spending on infrastructure developments ahead of the mega exhibition, Expo 2020 Dubai.
Analysts and market experts said investors will be back in the trading ring this year as both the Dubai and Abu Dhabi bourses are trading at attractive valuations. The volatility in the oil market is also expected to be over following strong measures taken by Opec and its allies and it will help the equity markets in general and energy firms in particular.
Referring to IMF data, experts said that Dubai's GDP growth will climb to 4.1 per cent this year from 3.3 per cent in 2018. They were of the view that Dh9.2 billion government spending on infrastructure projects this year is bound to generate economic activity and it will ultimately benefit the stock market.
"For 2019, we expect mild recovery for Dubai stocks as fundamentally strong banking, construction and real estate stocks appear oversold. The recovery in Dubai's real estate sector is expected to be limited; however, we believe the weakness is already priced in," said Faisal Hassan, head of investment research at Kamco Investment Company.
"Valuation multiples also support our expectation of a recovery given Dubai trades at one of the lowest P/E of 7x while Abu Dhabi is at 12x. In terms of price-to-book ratio, Dubai currently trades at 0.9x which is a strong support factor," Hassan said.
In 2018, UAE equity markets moved in opposite directions with the Dubai bourse declining 25 per cent while the Abu Dhabi was up more than 10 per cent. The Dubai witnessed weakness across all the sectors but the decline was steep in the case of real estate and financial services indices. On the other hand, the Abu Dhabi was buoyed by the banking index.
"The performance of traditional growth engines for the UAE markets - real estate and retail - have been lacklustre. This coupled with increasing input prices and value-added tax implementation has impacted the margins for businesses," he said.
He said the UAE real estate market continues to be oversupplied and it has exerted pressure on sales, occupancy and rentals. The market has witnessed an approximately 30 per cent fall in capital values in various pockets.
According to a note issued by Allied Investment Partners, the UAE and other Mena markets will be directed by fluctuation in the oil prices as well as the sentiments in the global markets.
"Going forward, the trading activity within the Mena region is likely to track the sentiments in global markets as well as the movement in oil prices, which continues to influence the performance of regional economies," said Lenie Assaad, associate, Allied Investment Partners.
"Furthermore, it is important to highlight that the local banking sector is currently trading at very attractive levels on local equity markets and are backed by solid fundamentals," she said.
Hassan believes that dividend paying stocks would attract investor interest in 2019. In addition, any signs of bottoming of real estate market should support high quality frontline stocks in the sector.
"Nevertheless, although oversold, we see minimal positive drivers that point to a near-term recovery for the aggregate market."
Hassan stressed that UAE investors would be tempted to look at large-cap oversold stocks in key sectors this year.
By Muzaffar Rizvi
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